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Friday, October 26, 2012

''PhillyDeals: Interest-rate swap strategy backfires, costs city $186M''

and wall st wonders why we hate them...............From Philly.com

''A complex financial strategy that was supposed to save Philadelphia money on bonds it sold investors in the mid-2000s could end up costing the city up to $186 million, compared with what issuing simple fixed-rate bonds would have cost, city treasurer Nancy Winkler told City Council members at a hearing Tuesday organized by Jim Kenney (D., at-large).

According to testimony from Winkler and other experts, the city arranged interest-rate swaps with Wall Street banks in exchange for up-front cash and to protect taxpayers from the risk of rising interest rates.

Instead, the city found itself owing millions to the banks and its clients when interest rates fell, bond insurers failed, and financial markets froze in the crisis of 2008. Some swaps contracts lacked cancellation clauses, boosting the city's costs.''

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1 comment:

  1. That's very frustrating in the part City Council members whose intention is for the betterment and protection of taxpayers from the risk of rising interest rates.

    ReplyDelete